States saying no to health care law could see downside

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Washington • For Gov. Rick Perry, saying "no" to the federal health care law could also mean turning away up to 1.3 million Texans, nearly half the uninsured people who could be newly eligible for coverage in his state.

Gov. Chris Christie not only would be saying "no" to President Barack Obama, but to as many as 245,000 uninsured New Jersey residents as well.

The Supreme Court's recent ruling gave governors new flexibility to reject what some deride as "Obamacare." But there's a downside, too.

States that reject the law's Medicaid expansion risk leaving behind many of their low-income uninsured residents in a coverage gap already being called the new "doughnut hole"  a reference to a Medicare gap faced by seniors.

Medicaid is a giant federal-state health insurance program for the poor, now mostly covering children, mothers and disabled people. The expansion in Obama's health care overhaul was originally expected to add roughly 15 million uninsured low-income people, mainly adults without children, who currently are not eligible in most states. Washington would pick up the entire cost for the first three years, with the federal share then dropping to 90 percent. The Medicaid expansion accounts for about half the total number of uninsured people projected to get coverage under the law.

If every state were to reject that Medicaid expansion  as the Supreme Court ruling now allows  some low-income people would still be picked up by other coverage provisions meant to help the middle class.

But nearly 11.5 million uninsured people below the federal poverty line would be left behind in a new coverage gap, according to recent estimates from the Urban Institute. That brings to mind the infamous "doughnut hole" in the Medicare prescription drug benefit, in which seniors with high drug costs find themselves paying out of pocket much of the year.

Those who fall into the new gap would neither qualify for Medicaid in their states under current rules nor be eligible for subsidized private insurance in new state marketplaces that Obama's law calls exchanges.

Low-income children and mothers would continue to have insurance through Medicaid. Then, starting in 2014, millions of people over the poverty line would have subsidized private coverage through the new exchanges. "And then this group in the middle has nothing," said Matt Salo, executive director of the National Association of Medicaid Directors. His organization takes no position on what states should do.

Things only get trickier from there.

Many states might actually go along with the Medicaid expansion.

"This is a lot of federal dollars that will lead to a lot of people having health care," said Salo. That means federal taxes from states opting out would be helping to subsidize coverage elsewhere.

And hospitals in opt-out states would still get hit with cuts programmed in the law under the assumption that every state would take the Medicaid expansion and fewer uninsured people would be needing charity care.

"You are still paying for that coverage expansion but not getting the benefit of it," said Herb Kuhn, president of the Missouri Hospital Association. "So you as a state are exporting your dollars to another state. If you have some adjoining state that accepts (the Medicaid expansion) then you are basically sending your dollars to your neighbor."

Kuhn's state is leaning against the expansion. Since the Supreme Court ruling last month, Republican leaders in at least 10 states have indicated they will reject or lean toward rejecting the Medicaid expansion. They cite a combination of reasons, including strained budgets, lack of confidence that Washington will honor its financial commitments in the long run and years of frustration with Medicaid mandates that limit state choices and shift costs from the federal government.

But other state officials are saying they will study their options and wait until after the November elections to decide. If Republican Mitt Romney wins the White House and starts dismantling Obama's law, opt-out states might not have to face the Medicaid doughnut hole. But the whole calculation changes if Obama is re-elected and his overhaul starts looking more and more like a done deal.

If that happens, some experts expect that states now refusing will try to cut deals with the federal government, angling for concessions on the expansion itself or the rest of their Medicaid programs.

"One of the things that happens in cases like these is negotiated settlements with specific states," said Dan Mendelson, president of Avalere Health, an analytical firm serving health care industry and government clients. "What I expect to happen here is that the federal government is going to be more flexible and allow states to do the expansion in ways that suit them."

It's hard to see that happening now. Opponents of the health care law are as adamant as ever, even after the Supreme Court upheld most of it, including the mandate that most Americans carry health insurance or pay a fine.

"I will not be party to socializing health care and bankrupting my state in direct contradiction to our Constitution and our founding principles of limited government," Texas Gov. Perry said last week. About one-fourth of Texas residents are uninsured, the highest percentage of any state.

But John Hawkins, top lobbyist for the Texas Hospital Association, says his group isn't dropping the subject.

"We have told the governor we are willing to continue the discussion," said Hawkins. "It's hard to imagine how you get from here to there without accessing federal funds at some level."